A way to look at how well an investment has performed over a period of several years. As the name suggests, you just take the annual returns for a given period of time and figure out the average.
For instance, in the last half dozen years, the NASDAQ has returned +3% then -12%, then +22%, then +9%, then +15%, then -2%. The AVERAGE of these annual returns is about +5.8%. That's it. No calculus needed. Just a little addition and then a little division. You know, an average.
Related or Semi-related Video
Finance: What Is a Real Return?67 Views
finance- a la shmoop. what is a real return? like is there a fake return? you
know like the news? well kinda .real return refers to an [man frowns talking to camera]
investment return mapped against inflation. so let's say you invest in a
bond that pays five percent a year for ten years and then pays you back your
principal .boring but nice- you know like a good doctor visit. your nominal return
over that period was 5% but since inflation was 3% a year during that
period on average your real return was only 2% a year- meaning that the
performance of your investment only eked out a 2% net gain against the price of [equation]
milk gas and you know knocked off iPhones. so don't be a chump who thinks
that they're making more money than they really are, and you know keep on keeping
it real. [man sitting in chair, talks to camera]
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